<PAGE> 1
PILGRIM AMERICA
FUNDS
==============================
MASTERS SERIES
--------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
==============================
ANNUAL REPORT
JUNE 30, 1996
MASTERS SERIES
MONEY MANAGER
<PAGE> 2
Pilgrim American
Funds
Masters Series
--------------
ANNUAL REPORT
June 30, 1996
----------
Table of Contents
<TABLE>
<S> <C>
Chairman's Message ................................................ 4
Portfolio Manager's Reports:
Pilgrim America Masters Asia-Pacific Equity Fund ............. 5
Pilgrim America Masters MidCap Value Fund .................... 10
Pilgrim America Masters LargeCap Value Fund .................. 14
Report of Independent Auditors .................................... 18
Statements of Assets and Liabilities .............................. 19
Statements of Operations .......................................... 20
Statements of Changes in Net Assets ............................... 21
Financial Highlights .............................................. 22
Notes to Financial Statements ..................................... 23
Portfolio of Investments:
Pilgrim America Masters Asia-Pacific Equity Fund ............. 28
Pilgrim America Masters MidCap Value Fund .................... 35
Pilgrim America Masters LargeCap Value Fund .................. 38
Tax Information ................................................... 43
</TABLE>
Pilgrim America Funds
3
<PAGE> 3
PILGRIM AMERICA MASTERS SERIES
- -------------------------------------------------------------------------------
CHAIRMAN'S MESSAGE
- -------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present the Annual Report for Pilgrim America Masters Series
of Funds ("Masters Series") which consists of Pilgrim America Masters
Asia-Pacific Equity Fund, Pilgrim America Masters MidCap Value Fund and Pilgrim
America Masters LargeCap Value Fund. In the following pages, the portfolio
manager for each Fund of the Masters Series discusses the results of operations
for the ten month period ended June 30, 1996, as well as the markets and factors
which have affected each of the Funds during this period.
The Masters Series is designed to give investors access to private money
managers who typically manage similar portfolios only for high net worth
individuals and institutional investors. Each money manager has extensive
knowledge and proven experience in their specialized market segments.
The Masters Series commenced operations on September 1, 1995. Pilgrim America
Masters Asia-Pacific Equity Fund invests primarily in the equity securities of
companies based in the Asia-Pacific Region. Pilgrim America Masters MidCap Value
Fund invests primarily in equity securities of companies that have a market
capitalization between $200 million and $5 billion. Pilgrim America Masters
LargeCap Value Fund invests primarily in equity securities of companies that
have a market capitalization in excess of $5 billion.
At Pilgrim America, we are dedicated to providing core investments for the
serious investor. We believe that the key to success is matching quality core
investments to the individual needs of investors. Core investments are the
foundation of every portfolio and the basis of other important investment
decisions. Pilgrim America prides itself on providing only high quality core
investments to help you reach your financial goals. Our goal is for every
investor to have a successful investment experience.
Thank you for selecting Pilgrim America Masters Series. We appreciate the
confidence you have placed with us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
- ------------------------------------
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
August 26, 1996
Pilgrim America Funds
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<PAGE> 4
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for Pilgrim America Masters
Asia-Pacific Equity Fund (the "Fund") for the ten month period ended June 30,
1996.
Since the date of the last semi-annual report, the Fund has earned 5.02%(1) (2)
compared to 9.39% for the Morgan Stanley Combined Far East ex-Japan (Free) Index
(the "MSCI"), a measure of the performance of Far East Markets excluding Japan.
During the same time, the Fund increased in size from under $7 million to some
$42 million.
GENERAL ECONOMIC ENVIRONMENT
In the first six months of 1996 sentiment in the region remained on the whole
cautious. Concern about the effect on earnings of rising US interest rates was a
common theme while some individual markets were affected by economic overheating
plus associated current account deficits, others by declining profits estimates
pursuant to economic slowdown. Periodic political worries depressed sentiment in
some countries.
SPECIFIC EQUITY MARKET CONDITIONS
The Hong Kong market rose 9.41% during the six month period ended June 30, 1996
on an interest rate cut in January, a pick up in the physical property market,
fund raising by blue chip companies and a cyclical turnaround in both the
economy and corporate sector. In Malaysia the market gained 14.18% despite
concerns over economic overheating, a weakening Ringgit and monetary tightening.
The rally was driven by strong overseas liquidity, better than expected
corporate results and hopes of an improvement in the macroeconomic fundamentals
later in the year. The Singapore market had a lackluster performance by
comparison, gaining 5.42% over the period as renewed foreign interest in blue
chip stocks emerged attracted by the country's low levels of domestic interest
rates and inflation despite a lethargic corporate earnings environment. The Thai
market fell 2.63%. Although data indicated a modestly slowing economy, with
improvements in the current account deficit and inflation, poor first quarter
corporate earnings results and a tighter monetary policy eroded any nascent
positive sentiment. The Indonesian market rose 15.65% driven primarily by a
continuing inflow of foreign money which focused on larger and more
Pilgrim America Funds
5
<PAGE> 5
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
liquid blue chip stocks, particularly in the banking and property sectors which
showed large gains, as well as on third line stocks. The Philippine market rose
26.25% during the period as active foreign funds drove the share prices of all
blue chip stocks up on the back of very strong economic growth and stable
inflation. The Korean market performed poorly, losing 7.42% on growing pessimism
over a slower economic outlook and a weakening yen. The Taiwan market was the
best performer in the region, rising 27.17% with most of the gain recorded in
April after political tensions with China had cooled. In addition the
announcement of the possible inclusion of Taiwan into the Morgan Stanley Capital
International indices effective September of this year triggered bullish
sentiment among both local and foreign investors. As a result there was an
inflow of foreign funds to increase exposure to the Taiwan market.
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
We have increased our exposure to a neutral position in Hong Kong as the market
is likely to consolidate further before an expected re-rating from the third
quarter, which could propel shares considerably higher. Within Hong Kong we have
added to our weighting in conglomerates on good earnings growth. In Malaysia
with a more positive outlook on the economy and earnings, we have reduced our
underweighted position. We expect that policy measures introduced over the last
nine months are likely to cool loan growth and reduce the current account
deficit. However we have sold our holdings in the property sector pursuant to an
earnings downgrade. As Singapore is in the decelerating phase of its business
cycle, we expect the economy to continue to slow for the remainder of the year
and the risk over an earnings downgrade remains. Accordingly we have increased
our underweighting in Singapore. In Thailand the combination of high interest
rates and a slight reduction in 1995 and 1996 earnings has led us to reduce our
overweight position. We have trimmed our exposure in the banking, finance and
property development sectors as a result of, respectively, the new regulation on
the loan deposit ratio which no longer allows overseas deposits to be included
when calculating the ratio; disappointing earnings in the finance sector; and
property margins under pressure because of increased holding costs. In addition,
we have reduced our weighting in the telecommunications sector given weak
subscriber figures. Nevertheless we remain overweighted in Thailand as we
believe earnings growth will reaccelerate in 1997 while declining interest rates
should encourage domestic investors. We have decided to add to our weighting in
the Philippines on improved corporate and economic fundamentals after the latest
IMF review. In Taiwan the market is selling on very attractive fundamental
valuation levels and relations with China have improved after the Presidential
elections. As a result we have increased our overweighting in
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<PAGE> 6
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
Taiwan, adding to our exposure in the plastics sector given margin improvements
based on low raw material costs and expansion possibilities in non PVC
materials. On the other hand we have reduced our exposure to the wire and cable
sector on disappointing earnings growth. Finally in Korea, a number of positive
influences, including falling interest rates, benign inflation, a more settled
political environment, an increase in foreign ownership levels and more
favorable bond yields has led us to increase our weighting there to a neutral
position.
In summary we believe the over all outlook for Asian equities remains
attractive, with improving macroeconomic fundamentals, strong corporate earnings
growth and relatively inexpensive valuations.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
HSBC ASSET MANAGEMENT AMERICAS, INC.
HSBC ASSET MANAGEMENT HONG KONG LIMITED
See Footnotes on page 9
Pilgrim America Funds
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<PAGE> 7
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
COMPARISON OF A $10,000 INVESTMENT
June 30, 1996
- -------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN PILGRIM AMERICA
MASTERS ASIA-PACIFIC EQUITY FUND (THE "FUND") AND THE MSCI FAR EAST ex JAPAN
(FREE) INDEX (THE "MSCI").
Based on a $10,000 initial investment, the graph below illustrates the total
return of the Fund against the MSCI. Note that the MSCI has inherent performance
advantages over any fund since it has no cash in its portfolio, imposes no sales
charges and incurs no operating expenses. An investor cannot invest directly in
an index.
<TABLE>
<CAPTION>
GROWTH OF A $10,000 INVESTMENT
MSCI Far East ex Asia-Pacific
Japan (Free) Index(3) Equity Fund A
--------------------- -------------
<S> <C> <C>
9/1/95 $10,000 $10,000
12/31/95 10,500 9,500
3/31/96 11,000 10,000
6/30/96 11,386 9,780
-------------------------------------------
TOTAL RETURNS
AS OF JUNE 30, 1996
=========================================== <S> <C>
Inception*
----------
Asia-Pacific Equity Fund A -2.20%
MSCI Far East ex Japan
(Free) Index 13.86%
-------------------------------------------
TOTAL RETURNS(1)
AS OF JUNE 30, 1996
===========================================
6 Months
-------- MSCI Far East ex Japan
Asia-Pacific Equity Fund A 5.02%
MSCI Far East ex Japan
(Free) Index 9.39%
</TABLE>
* Since September 1, 1995 (commencement of operations) to June 30, 1996.
The chart above shows the performance of Pilgrim America Masters Asia-Pacific
Equity Fund Class A shares only, assuming the deduction of the maximum sales
charge and reinvestment of all dividends and distributions at net asset
value.(2)
See Footnotes on page 9.
Pilgrim America Funds
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PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
- -------------------------------------------------------------------------------
FOOTNOTES
- -------------------------------------------------------------------------------
(1) Calculated without deducting the Class A maximum sales charge of 5.75% and
assuming reinvestment of all dividends and distributions. Total return with
the deduction of the maximum sales charge and assuming reinvestment of all
dividends and distributions since September 1, 1995 (commencement of
operations) to June 30, 1996 was 3.76%.
(2) Performance figures shown pertain only to Class A shares of the Fund. Total
return for Class B and M shares from September 1, 1995 to June 30, 1996
after deducting the maximum contingent deferred sales charge of 5.00%
(Class B shares only) or the maximum sales charge of 3.50% (Class M shares
only) and assuming reinvestment of all dividends and distributions were
-1.80% and -0.27%, respectively. Total return for Class B shares without
deducting the contingent deferred sales charge and assuming reinvestment of
all dividends and distributions was 3.19%. Returns reflect a partial waiver
of expenses for the period stated.
(3) The MSCI is a measure of the performance of the Far East Markets excluding
Japan.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed, may be
worth more or less than their original cost.
Pilgrim America Funds
9
<PAGE> 9
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for Pilgrim America Masters
MidCap Value Fund (the "Fund") for the ten months ended June 30, 1996.
Since the date of the last semi-annual report, the Fund earned 16.29%(1) (2)
compared to 9.01% for the Russell MidCap (tm) Index, a broad measure of
performance of midcap stocks.
GENERAL ECONOMIC ENVIRONMENT
The economic prognosticators on Wall Street once again endured a difficult
environment during the first half of 1996. As 1995 ended and the long bond
hovered around 6%, the "gurus" of the Street suggested a 5.5% long bond was
definitely in our sights. Now July is here and all we can do is hope we end the
year with a long bond around 7%. What went wrong? The simple answer lies in the
fact that the economy has been far stronger than many had expected. Employment
growth is surprisingly strong given this late stage of the business cycle.
Moreover, the consumer seems to have an endless appetite to spend, take on debt,
buy mutual funds, and then spend some more. We can only assume that after
reading about the budget deficit for so many years, the average consumer has
decided that if this strategy works in Washington it is certainly worth trying
for oneself. All kidding aside, the level of consumer debt does have many of us
concerned as we move into the second half of the year. We do take solace,
however, in the positive demographic trends which have supported the tremendous
inflows into mutual funds.
EQUITY MARKET ENVIRONMENT
The market performed very well in the first half of the year given the rapid
rise in interest rates and the ensuing bloodletting that took place in the bond
market. The S&P 500 Index registered a good return with 10.10%. Medium sized
companies performed in line with the broader market with the S&P MidCap index
showing a 8.3% return while smaller companies enjoyed the most sizable gains as
the Russell 2000 index marched upward with a 9.70% six-month return. The first
six-months performance can be attributed to a unique confluence of events namely
unprecedented money flows into mutual funds, increased merger and acquisitions
activity, and a continued increase in share buyback activity. Earnings for the
majority of companies were as expected with the exception being the
disappointments weathered by the more cyclical types of companies such as the
papers, steels, etc. The second half of the year has the potential to offer
surprises on the upside given that the damage has been done on the interest rate
front and earnings expec-
Pilgrim America Funds
10
<PAGE> 10
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
tations at the outset of the year were moderate given most analyst's views of a
benign economy. Stay tuned!
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
The first half of 1996 was kind to our style of investing as the Fund
outperformed the market and its peer group. From a stock selection standpoint,
the second half of the year will be no different for us than the first half. We
continue to look for companies which are underfollowed by Wall Street and are
positively changing their business mix and/or focus.
Some of the stocks which helped our first half performance included Raychem
Corporation, Varity Corporation, Federated Department Stores, and Reynolds and
Reynolds Company. Raychem has benefited from the appointment of a new CEO who
has immediately aggressively attacked a bloated expense structure. Varity, one
of the worldwide leaders in anti-lock braking systems, has proposed a merger
with Lucas Industries, a U.K. based automotive and defense products company. We,
as well as some others on Wall Street, believe the merger has the potential to
offer the company tremendous benefits. Federated, the owner of Bloomingdales and
Macys, enjoyed better earnings due to the long-awaited return of the consumer to
the retail store. Reynolds and Reynolds, a provider of computer technology to
automotive dealers and healthcare practices, continues to benefit from its
ability to invent new and exciting products for its customers.
We continue to intensely search the country for interesting companies in a broad
range of industries. Despite the broader market appearing to be a little
expensive, we continue to find compelling opportunities for value investors like
ourselves.
We thank you for giving us the opportunity to help you meet your investment
needs.
Sincerely,
CRAMER ROSENTHAL MCGLYNN, INC.
See Footnotes on page 13
Pilgrim America Fund
11
<PAGE> 11
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
COMPARISON OF A $10,000 INVESTMENT
June 30, 1996
===============================================================================
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN PILGRIM AMERICA
MASTERS MIDCAP VALUE FUND (THE "FUND") AN DTHE RUSSELL MIDCAP (tm) INDEX (THE
"RUSSELL INDEX").
Based on a $10,000 initial investment, the graph below illustrates the total
return of the Fund against the Russell Index. Note that the Russell Index has
inherent performance advantages over any fund since it has no cash in its
portfolio, imposes no sales charges and incurs no operating expenses. An
investor cannot invest directly in an index.
<TABLE>
<CAPTION>
GROWTH OF A $10,000 INVESTMENT
Russell MidCap(tm) MidCap
Index(3) Value Fund A
--------------------- -------------
<S> <C> <C>
9/1/95 $10,000 $10,000
12/31/95 10,500 10,500
3/31/96 11,490 11,000
6/30/96 11,506 11,355
-------------------------------------------
TOTAL RETURNS
AS OF JUNE 30, 1996
===========================================
Inception*
----------
MidCap Value Fund A 13.55%
Russell MidCap (tm) Index 15.06%
-------------------------------------------
TOTAL RETURNS(1)
AS OF JUNE 30, 1996
===========================================
6 Months
--------
MidCap Value Fund A 16.29%
Russell MidCap (tm) Index 9.01%
</TABLE>
* Since September 1, 1995 (commencement of operations) to June 30, 1996.
The chart above shows the performance of Pilgrim America Masters MidCap Value
Fund Class A shares only, assuming the deduction of the maximum sales charge and
reinvestment of all dividends and distributions at net asset value.(2)
See Footnotes on page 13.
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12
<PAGE> 12
- -------------------------------------------------------------------------------
FOOTNOTES
- -------------------------------------------------------------------------------
(1) Calculated without deducting the Class A maximum sales charge of 5.75% and
assuming reinvestment of all dividends and distributions. Total return with
the deduction of the maximum sales charge and assuming reinvestment of all
dividends and distributions since September 1, 1996 (commencement of
operations) to June 30, 1996 was 13.55%.
(2) Performance figures shown pertain only to Class A shares of the Fund. Total
return for Class B and M shares from September 1, 1995 to June 30, 1996
after deducting the maximum contingent deferred sales charges of 5.00%
(Class B shares only) or the maximum sales charge of 3.50% (Class M shares
only) and assuming reinvestment of all dividends and distributions were
14.80% and 15.65%, respectively. Total return for Class B shares without
deducting the contingent deferred sales charge and assuming reinvestment of
all dividends and distributions was 19.80%. Returns reflect partial waiver
of fees for periods stated.
(3) The Russell MidCap (tm) Index is a broad based measure of the performance
of MidCap stocks.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed may be
worth more or less than their original cost.
Pilgrim America Funds
13
<PAGE> 13
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for Pilgrim America Masters
LargeCap Value Fund (the "Fund") for the ten month period ended June 30, 1996.
Since the date of the last semi-annual report to June 30, 1996, the Fund earned
11.32%(1) (2) compared to 10.10% for the Standard & Poors 500 Index, a measure
of the performance of the broad US stock market.
ECONOMIC ENVIRONMENT AND EQUITY MARKET CONDITIONS
The increase in interest rates on the long-end of the market caught many
investors by surprise and signaled a concern over too rapid economic growth.
Indeed it appears that real growth in the second quarter will be above original
expectations back in January and February. Stronger growth coupled with rising
interest rates at this stage of a recovery is usually bad for growth stocks and
favorable for economically sensitive issues, particularly when valuations are
significantly different on a relative basis.
Because stock prices have risen so dramatically during the first half of 1996,
valuations are no longer cheap. Nevertheless, as long as interest rates do not
spike up it is possible for the market to continue to increase as earnings
increase over time. Periodically, we would expect investor concerns over
different problems to cause modest sell-offs producing a more saw-tooth type of
pattern in stock prices. We would expect this type of market pattern will be
beneficial to the Fund's subadvisor, Ark Asset Management's valuation approach
which emphasizes a disciplined, relative value analysis to stock buying.
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
At the beginning of 1996, we were heavily weighted in economically sensitive
stocks with an overweighting in department store issues, as well as, strong
weightings in capital spending, basic industry, and automobile issues.
The undervaluation of the economically sensitive stocks relative to growth
issues was the key factor which helped the Fund outperform during the first half
of the year. In addition, as the new year progressed, earning estimates were
raised to reflect better economic conditions than originally expected. Cyclical
stocks discounted these better numbers early in the first half of 1996.
Pilgrim America funds
14
<PAGE> 14
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
Towards the end of the first half of 1996, growth stocks began to act better
relative to value stocks and this caused late May and June to be not as good on
a relative basis as the earlier months had been. This is a normal rotation given
the very strong performance of value issues through May 1996.
Portfolio additions and deletions for the six months ended June 30, 1996 were as
follows:
ADDITIONS DELETIONS
Aetna Life & Casualty Co. Aluminum Co. of America
Air Products & Chemicals Inc. AMR Corp.
AMP, Inc. Chemical Banking Corp.
Chase Manhattan Corp. Corning, Inc.
CPC Int'l Inc. Entergy Corp.
Digital Equipment Corp. Ford Motor Co.
Eastman Chemical Co. General Public Utilities Corp.
Exxon Corp. Lowe's Cos. Inc.
First Chicago NBD Corp. Monsanto Co.
General Re Corp. NYNEX Corp.
GTE Corp. Pacific Gas & Electric Co.
Humana, Inc. PECO Energy Co.
Mobil Corp.
SBC Communications
US West Media Group, Inc.
360 Communications
We thank you for giving us this opportunity to help you meet your investment
needs.
Sincerely,
ARK ASSET MANAGEMENT COMPANY, INC.
See Footnotes on page 17
Pilgrim America Funds
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<PAGE> 15
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
COMPARISON OF A $10,000 INVESTMENT
June 30, 1996
===============================================================================
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN PILGRIM AMERICA
MASTERS LARGECAP VALUE FUND (THE "FUND") AND THE STANDARD AND POOR'S 500 INDEX
(THE "S&P").
Based on a $10,000 initial investment, the graph below illustrates the total
return of the Fund against the S&P. Note that the S&P has inherent performance
advantages over any fund since it has no cash in its portfolio, imposes no sales
charges and incurs no operating expenses. An investor cannot invest diretly in
an index.
<TABLE>
<CAPTION>
GROWTH OF A $10,000 INVESTMENT
S&P 500 Index(3) LargeCap Value Fund A
---------------- ---------------------
<S> <C> <C>
9/1/95 $10,000 $10,000
12/31/95 11,300 10,600
3/31/96 11,700 11,300
6/30/96 12,209 11,269
-------------------------------------------
TOTAL RETURNS
AS OF JUNE 30, 1996
===========================================
Inception*
----------
LargeCap Value Fund A 12.69%
S&P 500 Index 22.09%
-------------------------------------------
TOTAL RETURNS(1)
AS OF JUNE 30, 1996
===========================================
6 Months
--------
LargeCap Value Fund A 11.32%
S&P 500 Index 10.10%
</TABLE>
* Since September 1, 1995 (commencement of operations) to June 30, 1996.
The chart above shows performance of Pilgrim America Masters LargeCap Value Fund
Class A shares only, assuming the deduction of the maximum sales charge and
reinvestment of all dividends and distributions at net asset value.(2)
See Footnotes on page 17.
Pilgrim America Funds
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<PAGE> 16
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
- -------------------------------------------------------------------------------
FOOTNOTES
- -------------------------------------------------------------------------------
(1) Calculated without deducting the Class A maximum sales charge of 5.75% and
assuming reinvestment of all dividends and distributions. Total return with
the deduction of the maximum sales charge and assuming reinvestment of all
dividends and distributions since September 1, 1995 (commencement of
operations) to June 30, 1996 was 12.69%.
(2) Performance figures shown pertain only to Class A shares of the Fund. Total
return for Class B and M shares from September 1, 1995 to June 30, 1996
after deducting the maximum contingent deferred sales charge of 5.00%
(Class B shares only) or the maximum sales charge of 3.50% (Class M shares
only) and assuming reinvestment of all dividends and distributions were
13.90% and 14.92%, respectively. Total return Class B shares without
deducting the contingent deferred sales charge and assuming reinvestment of
all dividends and distributions was 18.85%. Returns reflect a partial
waiver of expenses for the periods stated.
(3) The S&P is an unmanaged index of 500 common stocks and is a generally
accepted measure of stock market performance.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed, will be
worth more or less than their original cost.
Pilgrim America Funds
17
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Pilgrim America Masters Series, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Pilgrim America Masters Asia-Pacific
Equity Fund, Pilgrim America Masters MidCap Value Fund and Pilgrim America
Masters LargeCap Value Fund, (the three funds comprising the Pilgrim America
Masters Series, Inc.), as of June 30, 1996, and the related statements of
operations and changes in net assets and financial highlights for the period
from September 1, 1995 (commencement of operations) to June 30, 1996. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1996 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds of Pilgrim America Masters Series, Inc. as of June
30, 1996, the results of their operations, changes in net assets and financial
highlights for the period from September 1, 1995 to June 30, 1996 in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, CA
August 16, 1996
18
<PAGE> 18
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP LARGECAP
EQUITY VALUE VALUE
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value
(Cost $41,347,428, $5,145,681 and $4,363,119, respectively) .......... $ 41,143,146 $ 5,544,063 $ 4,543,762
Short-term securities at amortized cost .................................. 1,017,000 911,000 428,000
Foreign currency (Cost $188,187) ......................................... 188,196 -- --
Cash ..................................................................... 45,981 10,516 10,319
Receivables:
Dividends and interest ............................................... 65,565 4,861 5,833
Fund shares sold ..................................................... 950,281 191,733 346,858
Investment securities sold ........................................... 430,437 -- 12,020
Due from affiliate ................................................... 160,204 7,204 11,874
Deferred organization expenses ........................................... 129,640 129,640 129,640
------------ ----------- -----------
Total Assets ....................................................... 44,130,450 6,799,017 5,488,306
------------ ----------- -----------
LIABILITIES:
Investment securities purchased .......................................... 1,067,405 533,685 264,001
Payable for fund shares redeemed ......................................... 242,271 -- 6,000
Payable to affiliates .................................................... 63,281 7,637 5,532
Other accrued expenses and liabilities ................................... 121,332 14,854 18,948
------------ ----------- -----------
Total Liabilities .................................................. 1,494,289 556,176 294,481
------------ ----------- -----------
NET ASSETS ............................................................... $ 42,636,161 $ 6,242,841 $ 5,193,825
============ =========== ===========
Net Assets consist of:
Paid-in capital ...................................................... $ 42,908,289 $ 5,733,839 $ 4,867,675
Undistributed (overdistributed) net investment income ................ (20,456) 45,510 15,422
Accumulated net realized gains (losses) on investments ............... (47,871) 65,110 130,085
Net unrealized appreciation (depreciation) of investments
and other assets, liabilities and forward contracts denominated
in foreign currencies ............................................... (203,801) 398,382 180,643
------------ ----------- -----------
Net Assets ......................................................... $ 42,636,161 $ 6,242,841 $ 5,193,825
============ =========== ===========
CLASS A:
Net assets ........................................................... $ 18,371,183 $ 2,388,867 $ 2,530,287
Shares authorized ($0.01 par value) .................................. 24,000,000 28,000,000 28,000,000
Shares outstanding ................................................... 1,775,146 199,214 214,973
Net asset value and redemption price per share ....................... $ 10.35 $ 11.99 $ 11.77
Maximum offering price per share (100/94.25 of net asset value)(1) ... $ 10.98 $ 12.72 $ 12.49
CLASS B:
Net assets ........................................................... $ 17,789,203 $ 2,123,434 $ 1,424,165
Shares authorized ($0.01 par value) .................................. 24,000,000 28,000,000 28,000,000
Shares outstanding ................................................... 1,725,745 177,890 121,671
Net asset value, redemption and offering price per share(2) .......... $ 10.31 $ 11.94 $ 11.71
CLASS M:
Net assets ........................................................... $ 6,475,775 $ 1,730,540 $ 1,239,373
Shares authorized ($0.01 par value) .................................. 12,000,000 14,000,000 14,000,000
Shares outstanding ................................................... 627,575 145,062 105,696
Net asset value and redemption price per share ....................... $ 10.32 $ 11.93 $ 11.73
Maximum offering price per share (100/96.50 of net asset value)(1) ... $ 10.69 $ 12.36 $ 12.16
</TABLE>
- -------------
(1) On purchases of $50,000 or more, the offering price is reduced.
(2) Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
See Accompanying Notes to Financial Statements
19
<PAGE> 19
STATEMENTS OF OPERATIONS
For the Ten Months Ended June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP LARGECAP
EQUITY VALUE VALUE
FUND FUND FUND
--------- --------- ---------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding taxes of
$18,982, $66 and $101, respectively) ........................... $ 247,380 $ 63,536 $ 35,908
Interest ......................................................... 72,130 9,470 7,656
--------- --------- ---------
Total investment income ........................................ 319,510 73,006 43,564
--------- --------- ---------
EXPENSES:
Investment management fees ....................................... 169,861 19,762 18,405
Distribution expenses
Class A Shares ................................................. 15,185 2,569 3,223
Class B Shares ................................................. 53,962 6,157 2,241
Class M Shares ................................................. 15,893 2,492 2,448
Custodian fees ................................................... 96,065 4,270 10,263
Transfer agent and registrar fees ................................ 60,434 9,421 9,325
Professional fees ................................................ 33,088 10,661 11,648
Amortization of organization expenses ............................ 25,585 25,585 25,585
Registration and filing fees ..................................... 24,642 11,961 14,170
Reports to shareholders .......................................... 9,013 2,436 2,088
Recordkeeping and pricing fees ................................... 7,866 1,190 1,121
Insurance expense ................................................ 1,667 1,667 1,667
Miscellaneous expenses ........................................... 1,286 1,156 265
Directors' fees .................................................. 778 184 229
--------- --------- ---------
Total expenses ................................................. 515,325 99,511 102,678
--------- --------- ---------
Less:
Waived and reimbursed fees ..................................... (191,391) (58,282) (66,978)
Earnings credits ............................................... (447) (532) (268)
--------- --------- ---------
Net expenses ................................................... 323,487 40,697 35,432
--------- --------- ---------
Net investment income (loss) ................................... (3,977) 32,309 8,132
--------- --------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains (losses) from:
Investments .................................................... (46,713) 65,110 146,051
Foreign currency transactions .................................. (27,170) -- --
Net change in unrealized appreciation (depreciation) of:
Investments .................................................... (204,282) 398,382 180,643
Other assets, liabilities and forward contracts denominated
in foreign currencies .......................................... 481 -- --
--------- --------- ---------
Net gain (loss) from investments and foreign currency transactions (277,684) 463,492 326,694
--------- --------- ---------
Net increase (decrease) in net assets resulting from operations $(281,661) $ 495,801 $ 334,826
========= ========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE> 20
STATEMENTS OF CHANGES IN NET ASSETS
For the Ten Months Ended June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP LARGECAP
EQUITY VALUE VALUE
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) ............................... $ (3,977) $ 32,309 $ 8,132
Net realized gain (loss) from investments .................. (46,713) 65,110 146,051
Net realized loss from foreign currency transactions ....... (27,170) -- --
Net change in unrealized appreciation (depreciation)
of investments .......................................... (204,282) 398,382 180,643
Net change in unrealized appreciation of other
assets, liabilities and forward contracts
denominated in foreign currencies ....................... 481 -- --
------------ ----------- -----------
Net increase (decrease) in net assets resulting
from operations ......................................... (281,661) 495,801 334,826
------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A shares .......................................... -- (4,590) (6,203)
Class B shares .......................................... -- (1,500) (801)
Class M shares .......................................... -- (711) (1,128)
In excess of net investment income:
Class A shares .......................................... (8,287) -- (3,494)
Class B shares .......................................... (897) -- (451)
Class M shares .......................................... (768) -- (635)
Net realized gains:
Class A shares .......................................... -- -- (11,797)
Class B shares .......................................... -- -- (1,745)
Class M shares .......................................... (2,424) -- --
In excess of realized gains:
Class A shares .......................................... (1,570) -- --
Class B shares .......................................... (783) -- --
Class M shares .......................................... (399) -- --
------------ ----------- -----------
Total distributions to shareholders ........................ (12,704) (6,801) (28,678)
------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares ........................... 44,111,419 5,793,907 5,027,606
Shares resulting from dividend reinvestment ................ 11,795 6,614 26,938
Cost of shares redeemed .................................... (1,226,688) (79,680) (199,867)
------------ ----------- -----------
Net increase in net assets resulting from capital share
transactions ............................................ 42,896,526 5,720,841 4,854,677
------------ ----------- -----------
Net increase in net assets ................................. 42,602,161 6,209,841 5,160,825
------------ ----------- -----------
Net assets at the beginning of the period .................. 34,000 33,000 33,000
------------ ----------- -----------
Net assets at the end of the period, including undistributed
(overdistributed) net investment income of $(20,456),
$45,510 and $15,422, respectively ....................... $ 42,636,161 $ 6,242,841 $ 5,193,825
============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
21
<PAGE> 21
FINANCIAL HIGHLIGHTS
For a Share Outstanding for the Period
September 1, 1995* Through June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
ASIA-PACIFIC EQUITY FUND MIDCAP VALUE FUND LARGECAP VALUE FUND
-------------------------------- ------------------------------- -----------------------------
CLASS A CLASS B CLASS M CLASS A CLASS B CLASS M CLASS A CLASS B CLASS M
------- -------- ---------- ---------- ---------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period .................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $10.00
Income (loss) from
investment operations:
Net investment
income (loss) ........... 0.03 (0.01) 0.00 0.13 0.07 0.06 0.07 0.06 0.06
Net realized and unrealized
gain on investments and
foreign currency
transactions ............ 0.34 0.32 0.33 1.91 1.90 1.91 1.87 1.81 1.83
------- -------- ---------- ---------- ---------- ------- ---------- ------- ------
Total from investment
operations ........... 0.37 0.31 0.33 2.04 1.97 1.97 1.94 1.87 1.89
------- -------- ---------- ---------- ---------- ------- ---------- ------- ------
Less distributions:
Net investment income ..... -- -- -- 0.05 0.03 0.04 0.07 0.06 0.06
In excess of net investment
income .................. 0.02 -- 0.01 -- -- -- 0.01 0.01 0.01
Realized gains on
investments ............. -- -- -- -- -- -- 0.09 0.09 0.09
------- -------- ---------- ---------- ---------- ------- ---------- ------- ------
Total distributions ..... 0.02 -- 0.01 0.05 0.03 0.04 0.17 0.16 0.16
------- -------- ---------- ---------- ---------- ------- ---------- ------- ------
Net asset value, end of period $ 10.35 $ 10.31 $ 10.32 $ 11.99 $ 11.94 $ 11.93 $ 11.77 $ 11.71 $11.73
======= ======== ========== ========== ========== ======= ========== ======= ======
TOTAL RETURN(b) .............. 3.76% 3.19% 3.32% 20.48% 19.80% 19.82% 19.56% 18.85% 19.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) ............ $18,371 $ 17,789 $ 6,476 $ 2,389 $ 2,123 $ 1,731 $ 2,530 $ 1,424 $1,240
Ratios to average net assets:
Expenses(a)(c) ............ 2.00% 2.75% 2.50% 1.75% 2.50% 2.25% 1.75% 2.50% 2.25%
Net investment
income (loss)(a)(c) ..... 0.33% (0.38)% (0.16)% 2.00% 1.27% 1.16% 0.65% (0.25)% 0.06%
Portfolio turnover rate ...... 15% 15% 15% 60% 60% 60% 59% 59% 59%
</TABLE>
- --------------
* Commencement of operations.
(a) Annualized.
(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses, the annualized ratio of
expenses to average net assets was 3.47%, 4.10% and 3.88% for Asia-Pacific
Equity Fund Class A, B and M, respectively; 4.91%, 5.32% and 4.72% for
MidCap Value Fund Class A, B and M, respectively; and 5.44%, 5.79% and
5.94% for LargeCap Value Fund Class A, B and M, respectively. Prior to the
waiver and reimbursement of expenses, the annualized ratio of net
investment income (loss) to average net assets was (1.14)%, (1.73)% and
(1.53)% for Asia-Pacific Equity Fund Class A, B and M, respectively;
(1.17)%, (1.56)% and (1.32)% for MidCap Value Fund Class A, B and M,
respectively; and (3.04)%, (3.53)% and (3.59)% for LargeCap Value Fund
Class A, B and M, respectively.
See Accompanying Notes to Financial Statements
22
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
===========================================
(1) SIGNIFICANT ACCOUNTING POLICIES
Organization - Pilgrim America Masters Series, Inc. ("Masters Series") is
an open-end management investment company that was organized as a Maryland
Corporation in 1995 and is registered under the Investment Company Act of 1940,
as amended. Masters Series currently consists of three separate diversified
investment funds, Pilgrim America Masters Asia-Pacific Equity Fund
("Asia-Pacific Equity Fund"), Pilgrim America Masters MidCap Value Fund ("MidCap
Value Fund") and Pilgrim America Masters LargeCap Value Fund ("LargeCap Value
Fund") each with its own investment objectives and policies.
Each Fund offers three classes of shares, Class A, Class B and Class M.
Each class represents interests in the same assets of the applicable Fund and
the classes are identical except for differences in their sales charge structure
and ongoing distribution charges. In addition, Class B shares, along with their
prorata reinvested dividend shares, automatically convert to Class A shares
approximately eight years after purchase.
The following significant accounting policies are consistently followed by
the Funds in the preparation of their financial statements, and such policies
are in conformity with generally accepted accounting principles for investment
companies.
(a) Security Valuation
Securities which are listed on the U.S. and foreign stock exchanges are
valued at the last sales price on the day the securities are being valued. Debt
and equity securities traded in the over-the-counter market and listed
securities for which no sales were reported on that date are valued at the mean
between the last reported bid and ask prices. Short-term debt securities
maturing in 60 days or less are valued at amortized cost. Securities for which
quotations are not readily available are valued at fair value as determined by
policies set by the Board of Directors. All investments quoted in foreign
currencies will be valued daily in U.S. dollars on the basis of the foreign
currency exchange rates prevailing at the time such valuation is determined by
each Fund's custodian.
(b) Security Transactions and Revenue Recognition
Securities transactions are accounted for on the trade date. Realized gains
or losses are reported on the basis of identified cost of securities delivered.
Interest income is recorded on an accrual basis and dividend income is recorded
on the ex-dividend date (except in the case of Asia-Pacific Equity Fund, for
certain securities which are recorded as soon after the ex-date as the Fund
becomes aware of such dividend).
(c) Foreign Currency Translation
The books and records of Asia-Pacific Equity Fund are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars on the
following basis:
(1) Market value of investment securities, other assets and
liabilities - at the exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and
expenses - at the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of Asia-Pacific Equity Fund are
presented at the foreign exchange rates at the end of the day, Asia-Pacific
Equity Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of
23
<PAGE> 23
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. Reported net realized foreign exchange
gains or losses arise from sales and maturities of short-term securities, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at fiscal year
end, resulting from changes in the exchange rate. Foreign security and currency
transactions may involve certain considerations and risks not typically
associated with investing in U.S. companies and the U.S. Government. These risks
include but are not limited to re-evaluation of currencies and future adverse
political and economic developments which could cause securities and their
markets to be less liquid and prices more volatile than those of comparable U.S.
companies and the U.S. Government.
(d) Foreign Currency Exchange Transactions
Asia-Pacific Equity Fund may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to and from
the U.S. dollar in connection with planned purchases or sales of securities. The
Fund either enters into these transactions on a spot basis at the spot rate
prevailing in the foreign currency exchange market or uses forward foreign
currency contracts to purchase or sell foreign currencies. Asia-Pacific Equity
Fund may not invest more than 5% of its assets (at market value at the time of
the investment) in forward foreign currency contracts. Risks may arise upon
entering into forward contracts from the potential inability of counterparties
to meet the terms of their forward contracts and from unanticipated movements in
the value of foreign currencies relative to the U.S. dollar.
(e) Distributions to Shareholders
The Funds record distributions to their shareholders on the ex-date. The
Funds intend to make distributions of net investment income and capital gains,
if any, at least annually. The amount of distributions from net investment
income, and net realized capital gains are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. Key differences are the treatment of short-term capital
gains, foreign currency transactions, organization costs and other timing
differences. To the extent that these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassifications.
Distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
distributions in excess of net investment income and/or net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in capital.
Accordingly, amounts as of June 30, 1996 have been reclassified as follows:
<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP LARGECAP VALUE
EQUITY FUND VALUE FUND FUND
------------ ---------- --------------
<S> <C> <C> <C>
Paid-in capital $(22,237) $(20,002) $(20,002)
Undistributed net investment income
(loss) $ (6,527) $ 20,002 $ 20,002
Accumulated net realized gains
(losses) on investments and
foreign currency transactions $ 28,764 -- --
</TABLE>
24
<PAGE> 24
(f) Federal Income Taxes
The Company's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute substantially all of its net investment income and any net realized
capital gains to its shareholders. Therefore, a federal income tax provision is
not required. In addition, by distributing during each calendar year
substantially all of its net investment income and net capital gains, each Fund
intends not to be subject to any federal excise tax.
Asia-Pacific Equity Fund has elected to defer $20,456 in post-October
losses from foreign currency transactions and $46,303 in realized losses from
the sale of investments until its 1997 tax year.
(g) Use of Estimates
Management of the Funds has made certain estimates and assumptions
relating to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
(h) Repurchase Agreements
Each Fund may invest any portion of its assets otherwise invested in
money market instruments in U.S. Government securities and concurrently enter
into repurchase agreements with respect to such securities. Such repurchase
agreements will be made only with government securities dealers recognized by
the Board of Governors of the Federal Reserve System or with member banks of the
Federal Reserve System. Under such agreements, the seller of the security agrees
to repurchase it at a mutually agreed upon time and price. The resale price is
in excess of the purchase price and reflects an agreed upon interest rate for
the period of time the agreement is outstanding. The period of these repurchase
agreements is usually short, from overnight to one week, while the underlying
securities generally have longer maturities. Each Fund will always receive as
collateral securities acceptable to it whose market value is equal to at least
100% of the amount invested by the Fund, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of its Custodian. If the seller defaults, a Fund might incur a loss or
delay in the realization of proceeds if the value of the collateral securing the
repurchase agreement declines and it might incur disposition costs in
liquidating the collateral.
(i) Deferred Organization Expenses
All expenses incurred in connection with the organization and registration
of the Funds under the Investment Company Act of 1940 and the Securities Act of
1933 are being paid for by the Funds. The total organization expenses of
approximately $466,000 are being amortized by each Fund equally over a period of
five years from the date of commencement of its operations.
(2) INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Each of the Funds has entered into an investment management agreement with
Pilgrim America Investments, Inc. (the "Manager") a wholly owned subsidiary of
Pilgrim America Group, Inc.. The investment management agreements compensate the
manager with a fee, computed daily and payable monthly, at the following annual
rates: Asia-Pacific Equity Fund pays the Manager a fee at an annual rate of
1.25% of the Fund's average daily net assets; MidCap Value Fund and LargeCap
Value Fund each pay the Manager a fee at an annual rate of 1.00% of each Fund's
average daily net assets. At June 30, 1996 Asia-Pacific Equity Fund, MidCap
Value Fund and LargeCap Value owed $41,925, $4,661 and $3,576, respectively, in
investment management fees.
The Manager has carefully selected Portfolio Managers for each of the Funds
on the basis of their successful application of a well-defined, long-term
investment approach over a period of several market cycles. HSBC Asset
Management Americas Inc. and HSBC Asset Management Hong Kong Limited ("HSBC")
serve jointly as the Portfolio Managers to Asia-Pacific Equity Fund. CRM
Advisors, LLC ("CRM") serves as Portfolio Manager to MidCap Value
25
<PAGE> 25
Fund. Ark Asset Management Co., Inc. ("ARK") serves as Portfolio Manger to
LargeCap Value Fund. As compensation for their services to the Funds, the
Manager (and not the Fund) pays HSBC, CRM and ARK fees at annual rates of 0.50%
of the average daily net assets of Asia-Pacific Equity , MidCap Value and
LargeCap Value Funds, respectively.
The Manager is responsible for managing the day to day operations of the
Masters Series.
On September 1, 1995, the Funds adopted a plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the
"Distributor") is compensated by the Funds for expenses incurred in the
distribution of each Funds' shares. Pursuant to the 12b-1 Plans, the Distributor
is entitled to compensation each month for actual expenses incurred in the
distribution and promotion of each Fund's shares, including the printing of
prospectuses and reports used for sales purposes, expenses of preparation and
printing of sales literature and other such distribution related expenses,
including any distribution or service fees paid to security dealers who have
executed a distribution agreement with the distributor.
Under separate plans of distribution pertaining to the Class A, Class B and
Class M shares, each class of shares of each Fund pays the Distributor at the
annual rate of 0.25% of the average daily net assets of Class A, 1.00% of the
average daily net assets of Class B and 0.75% of the average daily net assets of
Class M. At June 30, 1996 the Asia-Pacific Equity Fund, MidCap Value Fund and
LargeCap Value Fund owed to the Distributor $21,356, $2,976 and $1,956,
respectively in 12b-1 distribution fees.
The Manager has voluntarily agreed to limit other expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses to
1.75%, 1.50% and 1.50% of all classes of shares of the Asia-Pacific Equity Fund,
MidCap Value Fund and LargeCap Value Fund, respectively. This expense limitation
will apply to each Fund individually only until such Fund reaches $50 million in
net assets. At June 30, 1996 Asia-Pacific Equity Fund, MidCap Value Fund and
LargeCap Value Fund accrued $160,204, $7,204, and $11,874, respectively as a
reimbursement due from the Manager.
(3) INVESTMENT TRANSACTIONS
For the ten months ended June 30, 1996, the cost of purchases and proceeds from
the sales of securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
---- --------- -----
<S> <C> <C>
Asia-Pacific Equity Fund $43,726,834 $2,332,693
MidCap Value Fund $6,405,583 $1,325,118
LargeCap Value Fund $5,420,158 $1,203,205
</TABLE>
(4) CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS M
TEN MONTHS TEN MONTHS TEN MONTHS
ENDED ENDED ENDED
JUNE 30,1996 JUNE 30, 1996 JUNE 30, 1996
------------ ------------- -------------
Shares $ Shares $ Shares $
--------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASIA-PACIFIC EQUITY FUND
Shares issued 1,839,719 $ 19,083,997 1,749,194 $ 18,231,217 653,491 $ 6,796,205
Shares issued as
reinvestment of
dividends 944 9,350 151 1,497 96 948
Shares redeemed (68,717) (711,977) (23,700) (244,539) (26,112) (270,172)
--------- ------------ ---------- ------------ -------- -----------
Net increase in shares
outstanding 1,771,946 $ 18,381,370 1,725,645 $ 17,988,175 627,475 $ 6,526,981
========= ============ ========== ============ ======== ===========
</TABLE>
26
<PAGE> 26
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS M
TEN MONTHS TEN MONTHS TEN MONTHS
ENDED ENDED ENDED
JUNE 30,1996 JUNE 30, 1996 JUNE 30, 1996
------------ ------------- -------------
Shares $ Shares $ Shares $
--------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
MIDCAP VALUE FUND
Shares issued 201,649 $ 2,157,665 178,110 $ 1,976,175 145,744 $ 1,660,067
Shares issued as
reinvestment of
dividends 443 4,608 137 1,428 56 578
Shares redeemed (5,978) (65,602) (457) (4,699) (838) (9,379)
------- ----------- ------- ----------- ------- -----------
Net increase in shares
outstanding 196,114 $ 2,096,671 177,790 $ 1,972,904 144,962 $ 1,651,266
======= =========== ======= =========== ======= ===========
LARGECAP VALUE FUND
Shares issued 217,003 $ 2,326,399 130,422 $ 1,501,267 106,606 $ 1,199,940
Shares issued as
reinvestment of 1,977 21,090 279 2,970 270 2,878
dividends
Shares redeemed (7,107) (81,933) (9,130) (103,183) (1,280) (14,751)
------- ----------- ------- ----------- ------- -----------
Net increase in shares
outstanding 211,873 $ 2,265,556 121,571 $ 1,401,054 105,596 $ 1,188,067
======= =========== ======= =========== ======= ===========
</TABLE>
(5) CUSTODIAL AGREEMENT
Investors Fiduciary Trust Company (IFTC) serves as the Funds' custodian and
recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based
on the cash balances held by IFTC for each of the Funds. For the ten months
ended June 30, 1996, Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap
Value Fund received earnings credits of $447, $532 and $268, respectively.
(6) SUBSEQUENT EVENTS
Subsequent to June 30, 1996 the Asia-Pacific Equity Fund declared a
dividend from net investment income of $0.0160, $0 and $0.0023 per share for
Classes A, B and M, respectively. MidCap Value Fund declared a dividend from net
investment income of $0.0667, $0.0484 and $0.0626 per share for Classes A, B and
M, respectively. LargeCap Value Fund declared a dividend from net investment
income of $0.0265, $0 and $0.0025 per share for Classes A, B and M,
respectively. All dividends are payable on August 20, 1996 to shareholders of
record on July 31, 1996.
27
<PAGE> 27
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS
as of June 30, 1996
===============================================================================
COMMON STOCKS: 93.9%
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
HONG KONG: 32.2%
<S> <C> <C>
COMMERCIAL & INDUSTRIAL: 7.6%
160,000 Citic Pacific, Ltd. ...................... $ 646,970
250,000 Guangdong Investments .................... 158,254
255,000 Hutchison Whampoa, Ltd. .................. 1,604,312
1,100,000 (a) KPI Company, Ltd. ........................ 240,159
70,000 Swire Pacific, Ltd. ...................... 599,106
------------
3,248,801
------------
DIVERSIFIED HOLDING COMPANY: 0.4%
250,000 Cosco Pacific ............................ 179,247
------------
FINANCIAL: 5.5%
190,080 Bank of East Asia ........................ 694,933
172,000 Dao Heng Bank Group, Ltd. ................ 664,384
120,000 Liu Chong Hing Bank ...................... 163,551
200,000 Union Bank of Hong Kong .................. 210,575
150,000 Wing Hang Bank, Ltd. ..................... 594,907
------------
2,328,350
------------
FOOD DISTRIBUTOR: 0.4%
400,000 Ng Fung Hong Ltd. ........................ 184,738
------------
MANUFACTURING: 0.6%
200,000 (a) Shanghai Industrial Holding .............. 245,456
------------
PROPERTIES: 11.9%
200,000 Cheung Kong Holdings, Ltd. ............... 1,440,438
70,000 Great Eagle Holdings, Ltd. ............... 204,826
230,000 Henderson Investment, Ltd. ............... 206,506
135,000 Hysan Development Co., Ltd. .............. 413,335
135,000 New World Development Co., Ltd. .......... 626,106
160,000 Sun Hung Kai Properties, Ltd. ............ 1,617,425
160,000 Wharf Holdings, Ltd. ..................... 572,558
------------
5,081,194
------------
REAL ESTATE & FINANCIAL SERVICES: 0.5%
1,000,000 Lai Sun Development Co., Ltd ............. 204,116
------------
RETAIL CLOTHING: 0.5%
960,000 First Sign International Holding ......... 204,633
------------
</TABLE>
See Accompanying Notes to Financial Statements
28
<PAGE> 28
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
TRANSPORTATION: 0.4%
450,000 (a) Guangshen Railway Co. Class H ........... $ 170,043
------------
UTILITIES: 4.4%
105,000 China Light & Power Co., Ltd. ........... 476,120
113,000 Hong Kong Electric Holdings, Ltd. ....... 344,517
600,000 Hong Kong Telecommunications, Ltd. ...... 1,077,422
------------
1,898,059
------------
Total Hong Kong Common Stocks ....... 13,744,637
------------
INDONESIA: 7.4%
BANKS: 0.8%
210,000 PT Lippo Bank ........................... 347,518
------------
BUILDING PRODUCTS: 0.1%
20,000 PT Semen Cibinong ....................... 44,273
------------
ELECTRONICS: 0.3%
3,276 PT Indonesian Satellite Corp., ADR ...... 109,746
------------
MANUFACTURING: 3.3%
98,000 (a) PT Indofood Sukses Makmur ............... 442,295
650,000 PT Telekommunikasi Indonesia - Class B .. 984,848
------------
1,427,143
------------
TOBACCO PRODUCTS: 1.9%
125,000 PT Gudang Garam ......................... 535,945
23,000 (a) PT Hanjaya Mandala Sampoerna ............ 261,982
------------
797,927
------------
TRANSPORTATION: 1.0%
150,000 PT Semem Gresik ......................... 436,815
------------
Total Indonesia Common Stocks ....... 3,163,422
------------
MALAYSIA: 19.2%
COMMERCIAL & INDUSTRIAL: 11.6%
68,000 Genting Berhad .......................... 531,676
135,000 Leader Universal Holding ................ 381,616
330,000 Magnum Corporation Berhad ............... 558,380
100,000 Petronas Gas Berhad ..................... 429,030
500,000 Renong Berhad ........................... 797,915
</TABLE>
See Accompanying Notes to Financial Statements
29
<PAGE> 29
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMERCIAL & INDUSTRIAL (CONTINUED)
200,000 Sime Darby Berhad ............................... $ 553,328
145,000 Telekom Malaysia Berhad ......................... 1,290,698
95,000 Tenaga Nasional Berhad .......................... 399,960
------------
4,942,603
------------
FINANCIAL: 5.4%
90,000 Affin Holdings Berhad ........................... 211,107
180,000 DCB Holdings Berhad ............................. 617,081
85,000 MBF Capital Berhad .............................. 117,241
140,000 Malayan Banking Berhad .......................... 1,347,233
------------
2,292,662
------------
PROPERTIES: 2.2%
2,000 Hume Industries (Malaysia) Berhad ............... 9,783
52,000 Land & General Holdings Berhad .................. 128,228
120,000 (a) United Engineers Malaysia ....................... 832,398
------------
970,409
------------
Total Malaysia Common Stock ................. 8,205,674
------------
PHILIPPINES: 5.1%
BUILDING PRODUCTS: 0.5%
1,600,000 (a) Southeast Asia Cement HL ........................ 207,713
------------
COMMUNICATIONS: 1.5%
7,000 Philippine Long Distance Telephone Co., ADR ..... 406,875
155,000 (a) Pilipino Telephone Corp. ........................ 236,732
------------
643,607
------------
HOME BUILDING: 0.5%
250,000 C & P Homes, Inc. ............................... 217,163
------------
MISCELLANEOUS: 0.5%
26,000 (a) Benpres Holdings GDR ............................ 211,380
------------
REAL ESTATE: 1.0%
1,630,000 SM Prime Holdings, Inc. ......................... 423,215
------------
UTILITIES: 1.1%
46,000 Manila Electric Co. - Class B ................... 483,009
------------
Total Philippines Common Stock .............. 2,186,087
------------
</TABLE>
See Accompanying Notes to Financial Statements
Pilgrim America Funds
30
<PAGE> 30
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ ------
<S> <C> <C>
SINGAPORE: 10.9%
COMMERCIAL & INDUSTRIAL: 2.1%
95,000 Keppel Corp., Ltd. .................. $ 794,359
17,000 Van Der Horst. ...................... 79,507
------------
873,866
------------
FINANCIAL: 3.1%
60,000 Overseas-Chinese Bank ............... 701,531
66,000 United Overseas Bank ................ 631,378
------------
1,332,909
------------
FOOD AND BEVERAGE: 0.4%
18,400 Fraser & Neave, Ltd. ................ 190,363
------------
MARINE: 0.4%
35,000 Jurong Shipyard, Ltd. ............... 177,331
------------
PROPERTIES: 1.3%
55,000 (a) City Developments, Ltd. ............. 428,713
20,000 Singapore Land, Ltd. ................ 135,346
------------
564,059
------------
PUBLISHING: 1.8%
38,000 Singapore Press Holdings, Ltd. ...... 745,890
------------
TRANSPORTATION: 1.8%
70,000 Singapore Airlines, Ltd. ............ 739,087
------------
Total Singapore Common Stocks ... 4,623,505
------------
SOUTH KOREA: 3.9%
BANKS: 0.8%
14,600 (a) Cho Hung Bank ....................... 153,883
8,000 Kook Min Bank ....................... 174,556
------------
328,439
------------
CONSTRUCTION: 0.2%
1,500 (a) Dong Ah Construction ................ 51,405
2,050 (a) Dong Ah Construction, EDR ........... 40,180
------------
91,585
------------
ELECTRICAL EQUIPMENT: 0.6%
2,200 LG Information & Communication ...... 253,575
------------
MANUFACTURING/ELECTRONIC: 1.1%
1,600 Samsung Display Devices 114,596
323 (a) Samsung Elect N-1 ................... 25,682
</TABLE>
See Accompanying Notes to Financial Statements
31
<PAGE> 31
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ -----
<S> <C> <C>
MANUFACTURING/ELECTRONIC (CONTINUED)
1,072 Samsung Electronics Co. ........................ 89,994
1,000 Sungmi Telecom Electronics ..................... 218,195
---------
448,467
---------
METALS AND MINERALS: 0.7%
2,550 Pohang Iron & Steel Col, Ltd., ADR ............. 62,156
3,320 Samchully Co. .................................. 257,840
---------
319,996
---------
UTILITIES-ELECTRIC: 0.5%
2,400 Korea Electric Power ........................... 83,432
5,805 Korea Electric Power Corp., ADR ................ 140,771
---------
224,203
---------
Total South Korea Common Stocks ............ 1,666,265
---------
TAIWAN: 1.2%
COMPUTER SYSTEMS/SOFTWARE: 0.4%
9,505 (a) Macronix International Co., Ltd, ADR ........... 154,456
---------
ELECTRONICS-DEFENSE: 0.3%
15,400 Acer, Inc., GDR ................................ 119,735
---------
STEEL: 0.5%
8,640 (a) China Steel Corp., GDR 224,640
---------
Total Taiwan Common Stocks ................. 498,831
---------
THAILAND: 14.0%
BANKS: 5.8%
65,000 Bangkok Bank Public Co., Ltd. .................. 880,558
32,800 Siam Commercial Bank Public Co., Ltd. .......... 475,344
90,000 Thai Farmers Bank Public Co., Ltd. ............. 985,311
35,400 Thai Military Bank Public Co., Ltd. ............ 139,408
---------
2,480,621
---------
COMMUNICATIONS: 1.2%
35,000 Advanced Information Services PCL .............. 518,253
---------
CONSTRUCTION: 1.6%
14,000 Siam Cement Public Co., Ltd. ................... 686,961
---------
HOME BUILDING: 0.4%
13,000 Land & House Public Co., Ltd. .................. 163,825
---------
</TABLE>
32
<PAGE> 32
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
INSURANCE: 0.7%
40,000 Phatra Thanakit Public Co., Ltd. ..................... $ 278,817
------------
MINING: 2.9%
25,000 Banpu Public Co., Ltd. ............................... 720,671
150,000 Electricity Generating Public Co., Ltd. .............. 522,782
------------
1,243,453
------------
OIL & GAS: 1.4%
40,000 PTT Exploration & Production ......................... 585,987
------------
Total Thailand Common Stocks ..................... 5,957,917
------------
Total Common Stocks (Cost $40,418,635) ........... 40,046,338
------------
RIGHTS AND WARRANTS: 0.2%
HONG KONG: 0.0%
4,500 (a) Hysan Development Co.-Warrants --
------------
INDONESIA: 0.2%
90,000 (a) PT Lippo Bank-Rights ................................. 81,238
------------
MALAYSIA: 0.0%
33,000 (a) Renong Berhad-Rights ................................. 13,232
20,625 (a) Renong Berhad-Warrants ............................... 5,562
------------
18,794
SINGAPORE: 0.0% ------------
6,000 (a) Overseas-Chinese Bank-Rights ---
------------
Total Rights and Warrants (Cost $18,797) ............ 100,032
------------
CONVERTIBLE BONDS: 2.4%
PRINCIPAL
AMOUNT
- --------
TAIWAN: 2.4%
MARINE: 1.7%
$220,000 (a) President Enterprises Co., 0.00% due July 2001 ....... 360,251
300,000 Yangming Marine, 2.00% due October 2001 .............. 376,125
------------
736,376
------------
INDUSTRIAL: 0.7%
240,000 Nan Ya Plastic Corp., 1.75% due July 2001 ............ 260,400
------------
Total Convertible Bonds (Cost $909,996) .......... 996,776
------------
Total Long-Term Investments (Cost $41,347,428) ... 41,143,146
------------
</TABLE>
See Accompanying Notes to Financial Statements
33
<PAGE> 33
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
===============================================================================
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
SHORT-TERM INVESTMENTS: 2.4%
$1,017,000 Raytheon Commercial Paper, 5.53% due 07/01/96 ............ $ 1,017,000
------------
Total Short-Term Investments (Cost $1,017,000) ....... 1,017,000
------------
TOTAL INVESTMENTS (COST $42,364,428)* .................... 98.9% 42,160,146
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-NET ....... 1.1 476,015
----- ------------
TOTAL NET ASSETS ..................................... 100.0% $ 42,636,161
===== ============
</TABLE>
- -------------------------------------
(a) Non-income producing security
ADR - American Depository Receipt
EDR - European Depository Receipt
GDR - Global Depository Receipt
* Cost for federal income tax purposes is $42,365,996. Net unrealized
depreciation on investments for federal income tax purposes consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation.......................... $ 1,393,332
Gross Unrealized Depreciation.......................... (1,599,182)
------------
Net Unrealized Depreciation............................ $ (205,850)
============
</TABLE>
The Asia-Pacific Equity Fund had the following outstanding forward foreign
currency exchange contracts as of June 30, 1996:
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY TO CURRENCY TO
DATE RECEIVE DELIVER
- ------------------------------------------------------------------
<S> <C> <C>
7/1/96 283,999,719 $122,019
Indonesian rupiahs U.S. dollars
7/1/96 157,954 $112,151
Singapore dollars U.S. dollars
7/2/96 768,722 $30,300
Thai bahts U.S. dollars
7/2/96 $14,272 33,195,990
U.S. dollars Indonesian rupiahs
7/3/96 246,329,523 $105,903
Indonesian rupiahs U.S. dollars
7/3/96 394,935 $158,006
Malaysian ringgits U.S. dollars
7/3/96 166,320 $118,016
Singapore dollars U.S. dollars
7/5/96 $305,048 430,484
U.S. dollars Singapore dollars
7/8/96 126,732 $50,839
Malaysian ringgits U.S. dollars
</TABLE>
Net unrealized depreciation of $51 on these contracts at June 30, 1996 is
included in the accompanying financial statements.
See Accompanying Notes to Financial Statements
34
<PAGE> 34
MIDCAP VALUE FUND
PORTFOLIO OF INVESTMENTS
as of June 30, 1996
===============================================================================
COMMON STOCKS: 87.0%
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ ---------------
<S> <C>
AUTOMOTIVE: 6.5%
14,400 Mascotech, Inc. ................................ $ 212,400
4,000 (a) Varity Corp. ................................... 192,500
---------------
404,900
---------------
BANKS: 1.1%
3,000 John Hancock Bank & Thrift Opportunity Fund..... 69,750
---------------
BUILDING PRODUCTS: 3.6%
2,500 Armstrong World Industries, Inc. ............... 144,063
7,500 Schuller Corp. ................................. 77,812
---------------
221,875
---------------
CAPITAL GOODS: 4.3%
14,400 Westinghouse Electric Corp. .................... 270,000
---------------
CHEMICALS: 4.5%
4,000 (a) Bush, Boake Allen, Inc. ........................ 87,000
5,000 Mallinckrodt, Inc. ............................. 194,375
---------------
281,375
---------------
COMMERCIAL & INDUSTRIAL: 2.7%
6,000 Dial Corp. ..................................... 171,750
---------------
COMPUTER SOFTWARE & SERVICES: 2.9%
2,000 Reynolds & Reynolds............................. 106,500
1,000 (a) Sterling Software, Inc. ........................ 77,000
---------------
183,500
---------------
COMPUTER SYSTEMS: 4.2%
14,000 (a) Amdahl Corp. ................................... 150,500
6,000 (a) Wang Laboratories............................... 113,250
---------------
263,750
---------------
DEFENSE: 2.3%
7,000 (a) Power Control Technologies...................... 63,875
2,000 Thiokol Corp. .................................. 79,000
---------------
142,875
---------------
DIVERSIFIED HOLDING COMPANY: 2.7%
7,000 (a) U.S. Industries, Inc. .......................... 168,875
---------------
ELECTRICAL EQUIPMENT: 8.8%
5,800 National Service Industries, Inc. .............. 226,925
</TABLE>
See Accompanying Notes to Financial Statements
35
<PAGE> 35
MIDCAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ ---------------
<S> <C>
ELECTRICAL EQUIPMENT (CONTINUED)
3,300 Raychem Corp. ........................................... $ 237,188
2,000 (a) Ucar International, Inc. ................................ 83,250
---------------
547,363
---------------
FINANCIAL: 3.2%
7,000 Glendale Federal Bank.................................... 126,875
3,000 Great Western Financial.................................. 71,625
---------------
198,500
---------------
FOOD STORES: 3.3%
7,000 (a) Meyer (Fred), Inc. ...................................... 205,625
---------------
HOME BUILDING: 0.9%
4,000 (a) Walter Industries, Inc. ................................. 56,500
---------------
HOME PRODUCTS: 0.5%
1,500 Singer Co. .............................................. 30,375
---------------
HOUSEWARES: 7.0%
7,200 Premark International, Inc. ............................. 133,200
7,200 Tupperware Corp. ........................................ 304,200
---------------
437,400
---------------
LEISURE: 0.9%
10,000 (a) Topps Co., (The)......................................... 56,250
---------------
MACHINERY & EQUIPMENT: 1.6%
3,000 Harnischfeger Industries, Inc. .......................... 99,750
---------------
MANUFACTURING/ELECTRONIC: 4.9%
6,000 (a) Elsag Bailey Process Auto................................ 160,500
3,200 Tektronix, Inc. ......................................... 143,200
---------------
303,700
---------------
METALS & MINERALS: 1.5%
3,500 Schnitzer Steel Industries............................... 93,625
---------------
MISCELLANEOUS: 2.2%
4,000 Hughes Supply, Inc. ..................................... 139,000
---------------
OIL & GAS: 10.9%
7,400 (a) Barrett Resources Corp. ................................. 220,150
6,000 Coastal Corp. ........................................... 250,500
</TABLE>
See Accompanying Notes to Financial Statements
36
<PAGE> 36
MIDCAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
- -------------------------------------------------------------------------------
COMMON STOCKS: 87.0%
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ ---------------
<S> <C>
OIL & GAS (CONTINUED)
1,000 (a) Flores & Rucks, Inc...................................... $ 34,500
6,000 Forest Oil Corp. ........................................ 81,750
5,000 (a) Hugoton Energy Corp. .................................... 42,500
2,000 Union Pacific Resources Group, Inc. ..................... 53,500
----------
682,900
----------
REAL ESTATE & FINANCIAL SERVICES: 2.3%
3,000 Insignia Financial Group, Inc. .......................... 81,375
4,000 RFS Hotel Investors, Inc. ............................... 62,000
----------
143,375
----------
RETAIL: 4.2%
6,000 (a) Egghead, Inc. ........................................... 66,750
4,000 (a) Federated Department Stores, Inc. ....................... 136,500
1,600 (a) Proffitt's, Inc. ........................................ 56,800
----------
260,050
----------
Total Common Stocks (Cost $5,080,431).................5,433,063
----------
PREFERRED STOCKS AND WARRANTS: 1.8%
MACHINERY & EQUIPMENT: 1.8%
2,000 (a) Terex Preferred Stock .................................. 69,000
2,000 (a) Terex Warrants ......................................... 42,000
-----------
Total Preferred Stocks and Warrants (Cost $65,250)... 111,000
-----------
Total Long-Term Investments (Cost $5,145,681)........ 5,544,063
-----------
SHORT-TERM INVESTMENTS: 14.6%
PRINCIPAL
AMOUNT VALUE
- --------- -------------
<S> <C>
$911,000 Raytheon Commercial Paper, 5.53% due 07/01/96 .......................... 911,000
-------------
Total Short-Term Investments (Cost $911,000)......................... 911,000
-------------
TOTAL INVESTMENTS (COST $6,056,681)* .................... 103.4% 6,455,063
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-NET ...... (3.4) (212,222)
-------- -------------
TOTAL NET ASSETS ..................................... 100.0% $ 6,242,841
======== =============
</TABLE>
- ----------------------------
(a) Non-income producing security
* Cost for federal income tax purposes is the same as for financial
statement purposes. Net unrealized appreciation consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation ............................ $ 520,490
Gross Unrealized Depreciation ............................ (122,108)
----------
Net Unrealized Appreciation .............................. $ 398,382
==========
</TABLE>
See Accompanying Notes to Financial Statements
37
<PAGE> 37
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS
as of June 30, 1996
- -------------------------------------------------------------------------------
COMMON STOCKS: 87.5%
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ ------------
<S> <C>
AEROSPACE: 1.7%
1,500 Rockwell International Corp. ................... $ 85,875
------------
Automotive: 1.7%
1,200 General Motors Corp. ........................... 62,850
500 Goodyear Tire & Rubber Co. ..................... 24,125
------------
86,975
------------
BANKS: 3.4%
1,000 Chase Manhattan Corp. .......................... 70,625
1,800 First Chicago NBD .............................. 70,425
400 NationsBank Corp. .............................. 33,050
------------
174,100
------------
BROADCASTING: 3.0%
5,300 Tele-Communications, Inc. ...................... 96,063
3,300 (a) U.S. West Media Group........................... 60,225
------------
156,288
------------
BUILDING PRODUCTS: 1.0%
1,800 Masco Corp. .................................... 54,450
------------
CHEMICALS: 2.0%
600 Air Products & Chemicals, Inc. ................. 34,650
900 DuPont, (E.I.) DeNemours & Co. ................. 71,212
------------
105,862
------------
CHEMICALS-DIVERSIFIED: 1.3%
400 Eastman Chemical Co. ........................... 24,350
900 PPG Industries, Inc. ........................... 43,875
------------
68,225
------------
COMMUNICATIONS: 7.8%
3,000 AT&T Corp. ..................................... 186,000
1,100 GTE Corp. ...................................... 49,225
1,700 MCI Communications Corp. ....................... 43,563
2,800 Sprint Corp. ................................... 117,600
300 (a) 360 Communications ............................. 7,200
------------
403,588
------------
COMPUTER SYSTEMS: 1.6%
1,900 Digital Equipment............................... 85,500
------------
</TABLE>
See Accompanying Notes to Financial Statements
38
<PAGE> 38
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C>
CONSUMER PRODUCTS: 0.4%
300 Eastman Kodak Co. .............................. $ 23,325
------------
DEFENSE: 1.0%
500 General Dynamics Corp. ......................... 31,000
400 Raytheon Co. ................................... 20,650
------------
51,650
------------
DRUGS: 3.3%
1,600 Bristol Myers Squibb Co. ....................... 144,000
600 Pharmacia & Upjohn, Inc. ....................... 26,625
------------
170,625
------------
ELECTRICAL EQUIPMENT: 2.0%
1,700 Amp, Inc. ...................................... 68,212
400 General Electric Co. ........................... 34,600
------------
102,812
------------
ENERGY SERVICES: 0.4%
700 Dresser Industries, Inc. ....................... 20,650
------------
ENTERTAINMENT: 1.7%
2,300 Time Warner, Inc. .............................. 90,275
------------
FINANCIAL: 3.0%
1,000 American Express Co. ........................... 44,625
1,900 Dean Witter Discover & Co. ..................... 108,775
------------
153,400
------------
FOODS: 1.7%
1,500 Archer-Daniels-Midland.......................... 28,688
800 CPC International, Inc. ........................ 57,600
------------
86,288
------------
HEALTHCARE: 0.9%
2,700 (a) Humana, Inc. ................................... 48,262
------------
HOSPITALS: 2.4%
1,900 Columbia/HCA Healthcare Corp. .................. 101,413
1,000 (a) Tenet Healthcare Corp. ......................... 21,375
------------
122,788
------------
</TABLE>
See Accompanying Notes to Financial Statements
39
<PAGE> 39
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C>
INSURANCE: 9.3%
1,000 Aetna Life & Casualty Co. ....................... $ 71,500
3,800 Allstate Corp. .................................. 173,375
600 American International Group, Inc. .............. 59,175
1,800 Chubb Corp. ..................................... 89,775
600 General Re Corp. ................................ 91,350
------------
485,175
------------
INSURANCE LIFE: 1.2%
1,000 Unum Corp. ...................................... 62,250
------------
MACHINERY & EQUIPMENT: 0.3%
400 Deere & Co. ..................................... 16,000
------------
MANUFACTURING: 1.8%
1,600 AlliedSignal, Inc. .............................. 91,400
------------
METALS & MINERALS: 0.3%
1,500 LTV Corp. ....................................... 17,062
------------
MINES & MINERALS: 1.0%
1,000 Newmont Mining Corp. ............................ 49,375
------------
MISCELLANEOUS: 0.9%
600 Loews Corp. ..................................... 47,325
------------
OFFICE EQUIPMENT, PRODUCTS & SERVICES: 6.4%
2,000 International Business Machines Corp. ........... 198,000
2,500 Xerox Corp. ..................................... 133,750
------------
331,750
------------
OIL & GAS: 11.5%
1,200 Amerada Hess Corp. .............................. 64,350
600 Atlantic Richfield Co. .......................... 71,100
1,100 British Petroleum Co.-Sponsored ADR ............. 117,563
800 Burlington Resources, Inc. ...................... 34,400
700 Exxon Corp. ..................................... 60,812
</TABLE>
See Accompanying Notes to Financial Statements
40
<PAGE> 40
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ -----------
<S> <C>
OIL & GAS (CONTINUED)
600 Mobil Corp........................................ $ 67,275
2,800 Occidental Petroleum Corp......................... 69,300
400 (a) Oryx Energy Co.................................... 6,500
2,500 USX-Marathon Group................................ 50,313
900 Union Pacific Resources Group, Inc................ 24,075
1,000 Unocal Corp....................................... 33,750
------------
599,438
------------
PAPER AND FOREST PRODUCTS: 3.1%
1,300 Champion International Corp....................... 54,275
800 International Paper Co............................ 29,500
1,000 Kimberly-Clark Corp............................... 77,250
------------
161,025
------------
POLLUTION CONTROL: 1.3%
2,100 WMX Technologies, Inc............................. 68,775
------------
PUBLISHING: 1.1%
900 Dun & Bradstreet Corp............................. 56,250
------------
RAILWAYS: 1.7%
1,000 CSX Corp.......................................... 48,250
600 Union Pacific Corp................................ 41,925
------------
90,175
------------
RETAIL: 3.3%
1,100 Dillard Department Stores, Inc.................... 40,150
1,200 (a) Federated Department Stores, Inc.................. 40,950
1,200 May Department Stores Co.......................... 52,500
700 Penney (J.C.) Co., Inc............................ 36,750
------------
170,350
------------
TECHNOLOGY: 0.8%
800 Texas Instruments, Inc............................ 39,900
------------
TRANSPORATION: 0.5%
800 Ryder System, Inc................................. 25,312
------------
UTILITIES: 2.7%
1,900 Panhandle Eastern Corp............................ 62,462
1,600 SBC Communications................................ 78,800
------------
141,262
------------
Total Common Stocks (Cost $4,363,119) 4,543,762
------------
</TABLE>
See Accompanying Notes to Financial Statements
41
<PAGE> 41
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of June 30, 1996
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 8.2%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<S> <C>
COMMERCIAL PAPER: 8.2%
$428,000 Raytheon Commercial Paper, 5.53% due 07/01/96............................ $ 428,000
-----------
Total Short-Term Investments (Cost $428,000)......................... 428,000
-----------
Total Investments in Securities (Cost $4,791,119)* ...... 95.7% 4,971,762
Cash and Other Assets in Excess of Liabilities-Net ...... 4.3 222,063
------ -----------
Total Net Assets .................................... 100.0% $ 5,193,825
===== ===========
</TABLE>
- --------------------
(a) Non-income producing security
ADR - American Depository Receipt
* Cost for federal income tax purposes is $4,791,551. Net unrealized
appreciation for federal income tax purposes consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation ............................................................ $ 225,956
Gross Unrealized Depreciation ............................................................ (45,745)
----------
Net Unrealized Appreciation ........................................................ $ 180,211
==========
</TABLE>
See Accompanying Notes to Financial Statements
42
<PAGE> 42
TAX INFORMATION (UNAUDITED)
The Funds are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Funds' fiscal year end (June 30,
1996) as to the federal tax status of distributions received by the Funds'
shareholders. Accordingly, the Funds are hereby advising you that the following
dividends were declared during the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP VALUE LARGECAP
PER SHARE DATA: EQUITY FUND FUND VALUE FUND
- ---------------- ------------ ------------ ----------
<S> <C> <C> <C>
ORDINARY INCOME:
Class A $0.0211 $0.0504 $0.0762
Class B 0.0046 0.0349 0.0665
Class M 0.0077 0.0449 0.0674
SHORT-TERM CAPITAL GAINS (A)* 0.0040 - 0.0927
</TABLE>
____________
(a) Amounts apply to all classes
* Taxable as ordinary income
Corporate shareholders, if certain requirements are met, are generally entitled
to take the dividend received deduction on the portion of the Funds' dividend
distribution that qualifies under tax law. The percentage of the Funds' fiscal
year 1996 net investment income dividends that qualify for the corporate
dividend received deductions is 1.16%, 99.25% and 96.51% for Asia-Pacific Equity
Fund, MidCap Value Fund and LargeCap Value Fund, respectively.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Funds. In January 1997,
shareholders, excluding corporate shareholders, will receive an IRS form 1099
DIV regarding the federal tax status of the dividends and distributions received
by you in calendar year 1996.
43
<PAGE> 43
PILGRIM AMERICA FUNDS
INVESTMENT MANAGER CUSTODIAN
Pilgrim America Investments, Inc. Investors Fiduciary Trust Company
Two Renaissance Square 127 West 10th Street
40 North Central Avenue, Suite 1200 14th Floor
Phoenix, Arizona 85004 Kansas City, Missouri 64105
DISTRIBUTOR LEGAL COUNSEL
Pilgrim America Securities, Inc. Dechert Price & Rhoads
Two Renaissance Square 1500 K Street, N. W.
40 North Central Avenue, Suite 1200 Washington, D.C. 20005
Phoenix, Arizona 85004
1-800-334-3444
SHAREHOLDER SERVICING AGENT INDEPENDENT AUDITORS
Pilgrim America Group, Inc. KPMG Peat Marwick LLP
Two Renaissance Square 725 South Figueroa Street
40 North Central Avenue, Suite 1200 Los Angeles, California 90017
Phoenix, Arizona 85004
1-800-331-1080
TRANSFER AGENT This report and the financial
statements contained herein are
Investors Fiduciary Trust Company submitted for the general
c/o DST Systems, Inc. information of the shareholders
P.O. Box 419541 of the Funds. This report is not
Kansas City, Missouri 64141 authorized for distribution to
prospective investors in the Fund
unless preceded or accompanied by
an effective prospectus.
Two Renaissance Square,
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004
1-800-331-1080
PILGRIM AMERICA FUNDS
<PAGE> 44
PILGRIM AMERICA FUNDS
MASTERS SERIES
--------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
ELITE SERIES
--------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience"
Prospectuses containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling PILGRIM AMERICA SECURITIES,
INC. DISTRIBUTOR at 1-800-334-3444. Please read the prospectuses carefully
before you invest or send money.
21-SS-073096 082996
